Dilution of Assets Through Inheritance

by Heather Frances J.D. Google
Property that has been in your family for years may be further divided when you die.

Property that has been in your family for years may be further divided when you die.

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Large estates rarely stay intact over many generations, typically because the assets are diluted as each generation leaves its assets to the next. For example, a large tract of land may be split between children when the owner dies, and then those children may split their shares between their own children. You can promote or avoid the dilution of your assets after you die by using several estate planning vehicles.

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Wills are a basic tool for passing your assets to your loved ones when you die, directing who should inherit from you and who should administer your estate. Since you decide how you want your property distributed, you can give all your assets to one person; thereby, avoiding the dilution that would occur if you divided your assets between several beneficiaries. If you die without a valid will, your state's laws determine how your estate is distributed, and these laws typically divide your assets among a generation of family members. For example, if you have no spouse, state rules generally divide your property evenly among your children, possibly diluting your assets with the split. Your will allows you to prevent your assets from being divided by providing directions about who should inherit from you.


A trust is a separate legal entity created to hold your assets for the benefit of a named beneficiary. Whether a trust is created during your lifetime or by the terms of your will, your trust can hold onto property well into the future, providing income payments to your beneficiaries but keeping the actual assets out of their control. For example, if you own a family farm that you want to remain intact after your death, you can place the farm into a trust and appoint a trustee to manage the farm as an asset. Your beneficiaries, also named in the trust, would receive payments from the farm’s income but would not have any authority to sell the farm or split it up.

Life Estates

A life estate passes property to your beneficiaries while giving someone else the right to use that property during his lifetime. For example, you could give your spouse a life estate in real estate you own while naming your children as the remaindermen, or beneficiaries. During his lifetime, your spouse would have the legal right to use the property, but at his death, your children would inherit shares of the property and could sell it. Thus, a life estate allows you to keep your assets intact until the death of a loved one makes it acceptable to dilute them by splitting the assets between beneficiaries.

Naming Beneficiaries

Under most estate planning options, you can name beneficiaries individually or as a group. For example, you could name each of your children individually by name or simply designate an asset to be evenly split between your children as a group. If you plan on having additional children or grandchildren, it may be wise to name your beneficiaries as a group to avoid accidentally leaving a child out of your will if you forget to change it when another child is born. You can also separate your assets between beneficiaries by naming each asset and the beneficiary who receives that asset. This allows you to ensure that a particular asset goes to a particular beneficiary instead of dividing your total assets into shares for the beneficiaries to inherit. For example, you could give your home to one of your children and your business shares to another. While this does dilute your assets, it does not ensure your children inherit equal shares.

Creditors' Claims and Taxes

Your estate could be diluted by creditors' claims and estate taxes, but proper estate planning may help you avoid some of these payments. For example, you could convert some of your assets into non-probate assets like accounts with named beneficiaries. Since creditors make their claims against your estate by using the probate process, taking assets out of that process may take away your creditors' ability to access them. Similarly, you can use certain types of trusts, such as AB trusts or bypass trusts, to avoid estate taxes upon your death, thereby avoiding further dilution of your assets through tax payments.